Marcus Vinicius Ramalho de Oliveira Alessandro V. M. Oliveira DETERMINANTS OF THE MARKET CONCENTRATION IN THE AIR TRANSPORT SECTOR. THE RECENT PRIVATIZATION OF AIRPORTS CAUSED ANY EFFECT? Marcus Vinicius Ramalho de Oliveira Alessandro V. M. Oliveira 10° Simpósio de Economia dos Transportes 05/21/2015

Introduction 2012 2013 Fonte: http://veja.abril.com.br/noticia/economia/pequenas-companhias-aereas-avancam-no-mercado-domestico/ Fonte: http://exame.abril.com.br/negocios/noticias/tam-perde-espaco-para-azul-e-avianca-em-2013

Introduction

Introduction Economic deregulation 1990 End of SITAR HOTRAN approval based on a criteria purely technical ANAC, 2013

Introduction Economic deregulation Demand increase 2002: 28 billion RPK 2013: 88 billion RPK Fare reduction 2002: R$ 565,35 2013: R$ 295,46 ANAC, 2014 Concentration increased in large hubs

Introduction Network concentration at certain airports Localization Political relevance Borenstein, 1989 Big operators: barriers to the new entrants Borenstein, 1989; Scotti, et al., 2012; Oliveira, et al., 2015

Introduction 2014 FIFA World Cup Announcement: July 2006 Brazilian big blackout: october 2006 to july 2007 Increase of geographic concentration Oliveira, et al., 2015 Increase of efficiency and airline network Indaquate airports Solution: Privatization of the airports

Research problem What is the effect of the privatization of the airports in the concentration of Brazilian airline network?

Literature review Airports Acting as monopolies or oligopolies Bel e Fageda, 2009; Bilotkach, et al., 2011 Passenger welfare is not the priority Regulations effects Bilotkach, et al., 2011 Europe case

Literature review Privatization effects Airport fees Zhang e Zhang (2003) High fees Non-aeronautical revenues Bel e Fageda (2009) Low elasticity Huge investments Airlines importance Correlation: Concentration at the airport and airport fees

Literature review Efeitos da privatização Efficiency Scotti et al. (2012) Privatized airports are less efficient Oum et al. (2008) Privatized airports are more efficient Correlated with the direct competition

Literature review Privatization effects Concentration Without specific literature Evidence of correlation with airport fees, which is affected by privatization Borenstein, 1989; Evans et al., 1993

Conceitual model Supply model São Paulo metropolitan region Data Hirschman-Herfindalh Index (HHI) in the route Market share calculated by passenger flow São Paulo metropolitan region Viracopos (IATA: VCP; ICAO: SBKP) Guarulhos (IATA: GRU; ICAO: SBGR) Congonhas (IATA: CGH; ICAO: SBSP) Data Observations between january 2002 and december 2013

Conceitual model Competitivity Attractiveness LCC Saturated airport Oum et al., 2008 Attractiveness Demand Average hourly cost of the route Bel e Fageda, 2009

Conceitual model Conjunctural effects Airport concentration Financial crisis Varig Code share Airport concentration Entry barriers Slots Experimental variable Dummy for privatization

Hypothesis H1: The presence of competition has negatively affected the concentration on the route. H2: The privatization negatively affected the concentration on the route.

Airport Average Concentration (od) Privatization effects Conceitual model Conjunctural effects Competitivity Airport Average Concentration (od) H1 Route HHI H2 Privatization effects Demand Attractiveness

Conceitual model Fincrisis fincrisis x hghdens bankrupt lcc_primary lcc_secndry codeshare ln cityhhi HHI H1 lnmphhi_rpax Model 01 Privatz Model 02 prv_preannc prv_announc prv_auction prv_control privatz x ln cityhhi H2 ln airline_cost ln pdew ln geog sh congestion

Conceitual model Unobservable effects Limitations Regulation Same for all airpoirts researched Limitations Post privatization period Spillover effects

Results Tests Cointegration and unit roots Multicollinearity Heteroscedasticity Autocorrelation HAC models Airport congestion HAC without variable Instrument

Results Model 01 lnmphhi_rpax = β1 ln pdew + β2 ln airline_cost + β3 ln geog sh + β4 ln cityhhi + β5 privatz x ln cityhhi + δ1 codeshare + δ2 fincrisis + δ3 fincrisis x hghdens + δ4 bankrupt + δ5 lcc_secndry + δ6 lcc_primary + δ7 privatz + ε GMM2S Model 01 GMM2S Model 02 ln pdew -0.1139 ● -0.1178 ● ln airline_cost 0.0254 ● 0.0255 ● fincrisis 0.1139 ● 0.1063 ● fincrisis x hghdens 0.0238 0.0330 ● bankrupt 0.0401 ● 0.0396 ● lcc_secndry -0.0572 ● -0.0581 ● lcc_primary -0.0619 ● -0.0643 ● codeshare 0.1195 ● 0.1164 ● ln geog sh 0.1948 ● 0.2063 ● ln cityhhi 1.2023 ● 1.2011 ● privatz   prv_preannc 0.0098 prv_announc 0.0113 prv_auction 0.1081 ● prv_control 0.1212 ● privatz x ln cityhhi 0.0865 ● H1 Model 02 lnmphhi_rpax = β1 ln pdew + β2 ln airline_cost + β3 ln geog sh + β4 ln cityhhi + β5 privatz x ln cityhhi + δ1 codeshare + δ2 fincrisis + δ3 fincrisis x hghdens + δ4 bankrupt + δ5 lcc_secndry + δ6 lcc_primary + δ8 prv_preannc + δ9 prv_announc + δ10 prv_auction + δ11 prv_control H2 ● p < 0.01 ● p < 0.05

Conclusions Competitivity Privatization Presence of competitivity Codeshare Privatization Increase the concentration Advantage to big operators Actions of airport operator

Contributions Privatization Concentration of network Decision making Monopoly / oligopoly Decision making Airport efficiency Airport fees Passenger welfare

Bibliography A. V. M. Oliveira, G. Lohmann and T. G. Costa, "Network concentration and airport congestion in a post de- regulation context: A case study of Brazil 2000-2010," Journal of Transport Geography, 2015. A. Zhang and Y. Zhang, "Airport charges and capacity expansion: effects of concessions and privatization," Journal of Urban Economics, vol. 53, pp. 54-75, 2003. Agência Nacional de Aviação Civil - ANAC (Brazil), “Manual para Membros Consultivos HOTRAN Eletrônico”, 2013. Agência Nacional de Aviação Civil - ANAC (Brazil), “Relatório de Tarifas Aéreas Domésticas - 3° Trimestre de 2014,” 31ª Edição, 2014. D. Scotti, P. Malighetti, G. Martini and N. Volta, "The impact of airport competition on technical efficiency: A stochastic frontier analysis applied to Italian airport," Journal of Air Transport Management, vol. 22, pp. 9-15, 2012.

Bibliography G. Bel and X. Fageda, "Privatization, regulation and airport pricing: an empirical analysis for Europe," EUI Working Papers RSCAS, Florence, 2009. S. Borenstein, "Hubs and high fares: dominance ad market power in the U.S. airline industry," The Rand Journal of Economics, vol. 20, pp. 344-365, 1989. T. H. Oum, J. Yan and C. Yu, "Ownership forms matter for airport efficiency: A stochastic frontier investigation of worldwide airports," Journal of Urban Economics, vol. 64, pp. 422-435, 2008. V. Bilotkach, J. A. Clougherty, J. Mueller and A. Zhang, "Regulation, privatization and airport charges: panel data evidence from european airports," 2011. W. N. Evans, L. M. Froeb and G. J. Werden, "Endogeneity in the Concentration-Price Relationship: Causes, Consequences, and Cures," The Journal of Industrial Economics, vol. 41, no. 4, pp. 431-438, 1993.

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